Senate candidates differ on tax preferences

BOSTON — Both candidates in the U.S. Senate race in Massachusetts say their policies would lower taxes for the middle class while contending that their opponents’ policies would raise taxes on average Americans. The conflicting arguments mirror a national debate over the role taxes should play in lowering the federal budget deficit and strengthening the economy.

Republican Sen. Scott Brown and Democratic challenger Elizabeth Warren, a Harvard Law School professor, agree that the so-called Bush-era tax cuts that expire on Dec. 31 should be extended for middle-income taxpayers. But their stands diverge sharply from there.

Warren, like President Barack Obama and other Democrats, wants the cuts to expire only for families with annual incomes of $250,000 or more. For that group of wealthier taxpayers she would also support a return to the Clinton-era tax rate of 20 percent for capital gains and treating dividends as ordinary income.

Brown, like most in his party including GOP presidential nominee Mitt Romney, is adamant that the Bush-era cuts be extended for Americans in all tax brackets, including the highest ones. He would make no change in rates on capital gains and dividends.

Asked in a radio interview last month whether he would consider voting for a bill that would extend the cuts for the estimated 98 percent of taxpayers who earn below $250,000, but not for those above, Brown replied: “Crystal clear. No.”

Warren said Brown’s stance essentially holds middle-income taxpayers “hostage” and would all but guarantee they are hit with a tax hike in 2013.

“Sen. Brown supports the Republicans when they say tax cuts for those at the very top, and then let everyone else pick up the pieces,” the Democrat said at a recent campaign stop.

Brown has voted a dozen times against asking the wealthiest Americans to pay more in taxes, according to Warren’s campaign, including a failed attempt in the Senate to impose the so-called Buffett rule, which would require those earning $1 million a year or more to pay at least 30 percent of their income in taxes. Warren supports the rule.

Brown’s campaign says that if all the tax increases supported by Warren passed, it would raise taxes $3.4 trillion over 10 years, making it the largest tax hike since World War II. Warren accuses Brown of making up those numbers.

Raising taxes on income above $250,000 would damage small businesses that report profits as income, Brown says, stifling an important engine of economic growth and killing off hundreds of thousands of jobs.

The Tax Policy Center, a Washington research group, estimates that allowing the full Bush-era tax cuts to expire on Dec. 31 would increase total taxes by $171 billion next year. If all tax cuts, including a 2010 temporary payroll tax cut, were to expire Dec. 31, the total would climb to $536 billion.

Limiting an extension of the Bush-era tax cuts to those below the $250,000 income level would by some estimates provide as much as $900 billion in revenue for the U.S. over the next 10 years. In the view of Warren and others, it would help bring a balanced approach to deficit reduction that combines new revenue with spending controls as the nation hurtles toward the proverbial “fiscal cliff.”

Brown said he doesn’t want to raise taxes on any Americans while the economy still struggles to recover and before all efforts to root out inefficiencies, fraud and waste from government. He also backs a constitutional balanced budget amendment and giving the president a line-item veto.

“What about trying all of those other things before we get to the point of saying ‘You know what, we’re still a little short?’” he said.

Simon Johnson, an economist at the Sloan School of Management at MIT, is among those who believe the deficit cannot be tackled through spending cuts alone and that revenue is necessary.

“We have completely lost our grip on the revenue side, and while I also support various measures to control spending, that’s not enough to responsibly bring the budget under control,” said Johnson, the former chief economist of the International Monetary Fund.

Johnson, who would advocate for the eventual phase-out of all Bush-era tax cuts, said the U.S. wasn’t running up chronic deficits or racking up huge debt in the 1990s, prior to the cuts. He also questioned why Brown, who describes himself as a moderate and independent-thinking senator, felt compelled to sign the no-new-tax pledge circulated by Grover Norquist, head of Americans for Tax Reform.

“In my judgment, Brown is taking a principled stand here, and I think (Warren) is being disingenuous,” countered David Tuerck, chairman of the economics department at Suffolk University.

Brown and Republicans are looking at the total picture of taxes, beyond the current fiscal emergency, said Tuerck, who heads the conservative-leaning Beacon Hill Institute.

“It’s a big deal to be raising taxes on people who make over $250,000, because a very substantial portion of profits are reported by taxpayers as income, penalizing small businesses.”

Brown and Warren share some common ground on corporate taxes. Brown supports lowering the corporate rate while also examining whether certain deductions, loopholes or tax credits can be eliminated. Warren’s campaign said she’d consider lower corporate rates as part of comprehensive tax code reform that eliminates “giveaways, gimmicks and loopholes.”